It's not that easy to solve banking problems<\/p>\n
By Kwik Kian Gie<\/p>\n
JAKARTA (JP): The new government which will be established
\nafter the June 7 general election will clearly face huge and
\nsophisticated hurdles in trying to revive the deteriorating
\nbanking industry because many existing problems have yet to be
\nsolved.<\/p>\n
The Asset Management Unit (AMU), an institution the government
\nrecently established to manage assets confiscated from bad
\ndebtors, for example, is overburdened by piles of bad assets,
\nbecoming a monstrous entity that is very difficult to deal with.<\/p>\n
There are, at least, three areas of vulnerability involved in
\nthe management of the seized assets, particularly those in the
\nform of companies, under AMU's control. First, lack of knowledge,
\nbusiness experience and entrepreneurship may lead AMU executives
\nto sell the companies at low prices.<\/p>\n
Second, executives of the confiscated companies may manage
\nthem unprofessionally, regarding them as companies without
\nspecific owners. Meanwhile, the former owners are reluctant to
\nsupervise the companies' management because they are worried
\nabout being regarded as errant businesspeople. In the meantime,
\nAMU executives are unable to manage the companies or properly
\nsupervise their management.<\/p>\n
Third, company executives who are not shareholders may abuse
\ntheir management positions in order to enrich themselves.<\/p>\n
There is also an indication that the government is reluctant
\nto disclose debt problems at state banks. According to sources,
\nsome debtors still have influence with government officials and
\nare able to successfully lobby the officials not to disclose
\ntheir debts so they will not be legally processed. Some debtors
\nmight even be using their money to persuade executives at state
\nbanks to write off their bad debts and delete all of the data
\nrelating to their debts.<\/p>\n
Sources said corruption, collusion and nepotism involving bank
\nexecutives and borrowers, which used to be aimed at arranging
\nlarge loans without adequate collateral, still exist, with the
\nmain objective now being to cover up past misdeeds and abolish
\nevidence.<\/p>\n
The government's bank recapitalization program has also run
\ninto trouble because implementing the program requires more funds
\nthan previously calculated. The government guaranteed the
\nrecapitalized banks would deposit their share of the funds -- 20
\npercent of required recapitalization funding -- in an escrow
\naccount before the program's implementation. However, long delays
\nin the program caused the banks to lose more money due to
\nnegative interest rate spread. The funds needed to recapitalize
\nthe banks, therefore, increased substantially.<\/p>\n
The banks should not necessarily have to generate funds from
\nthe public simply because their interest rates are higher than
\ntheir lending rates, but apparently they are forced to raise
\nfunds to finance their daily operations.<\/p>\n
Considering the sophisticated problems being encountered by
\nthe banks, the next government will not be able to solve the
\nbanking industry's problems without dealing with borrowers' bad
\ndebts. Solving the borrowers' debts will require individual
\nscrutiny because their problems are different and specific.<\/p>\n
One of the problems which must be addressed is the valuation
\nof borrowers' assets. Some bankers say AMU and the Indonesian
\nBank Restructuring Agency (IBRA), which are assisted by
\nconsultants JP Morgan and Lehman Brothers, have undervalued
\nborrowers' assets by some 80 percent. According to the bankers,
\nthe two institutions were too mechanical in determining the value
\nof the assets, using a preset computer program to devalue the
\nnumbers in the borrowers' balance and profit-loss statements.
\nSuch a way of valuation surely cannot be accepted.<\/p>\n
There are actually three ways of valuing assets. The first way
\nis to calculate the possible costs to construct similar
\nproduction facilities. The machinery must be valued in U.S.
\ndollars because it has to be imported with dollars, and the
\ndollar-termed value should be converted to rupiah.<\/p>\n
The second way is to multiply the annual profits of the
\nborrowing companies, while the third way is to determine the net
\npresent value of the companies' future cash flow.<\/p>\n
It would be fair for the bankers to demand the depreciated
\nvalue of their assets be recalculated, taking into consideration
\nwhether the value of the assets had been marked up by the
\nborrowers, whether the value depreciation was affected by the
\neconomic depression or whether the assets had been mismanaged.
\nSuch differences in asset valuation could also be used to
\nproportionally share the responsibility between creditors and
\ndebtors.<\/p>\n
Some bankers suspect Lehman Brothers and JP Morgan, as
\ninvestment banks, have not been objective in carrying out their
\ndue diligence reports. The two investment banks, according to
\nsome bankers, may have had an interest in \"undervaluing\" the
\nassets because they themselves might want to purchase the assets
\nat the lowest price possible.<\/p>\n
The next government, whose officials are expected to be free
\nfrom corruption, collusion and nepotism, should reconsider
\nwhether it will continue using the services of the two investment
\nbanks or, instead, appoint valuers or accountants to carry out
\ndue diligence in order to objectively value the assets.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/its-not-that-easy-to-solve-banking-problems-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}